Panel:
- Moderator: Kai Hoffmann, NorthStar Communications
- Panelists:
- Robert Cohen, Scotia Global Asset Management
- Willem Middelkoop, Commodity Discovery Fund
When investing in small-cap mining companies, success involves more than just luck. It requires an understanding of geology, being aware of political factors, and having the ability to spot new big discoveries.
The Engineering Advantage and Strategic Discoveries
Robert Cohen brings a unique perspective to resource investing. With a background in mining and mineral process engineering from UBC, he’s not your typical fund manager. His approach combines technical knowledge with financial acumen, supplemented by a co-manager with geological expertise.
Take Founders Metals, for instance. Cohen met one of their geologists at a conference, heard about double-digit grades, had a follow-up call to learn more, and then invested 10% of the company at 40 cents per share in a $10 million market cap company. The discovery continues to unfold, with their team uncertain about the full extent of the gold deposit. The company’s market cap is now $500 million.
Cohen believes Snowline Gold, currently exploring for gold in the Yukon, represents another promising exploration play, could yield a world-class discovery, and become a future acquisition target.
Strategic Metal Opportunities Beyond Traditional Plays
While gold and copper remain a core focus, they have been very positive on uranium and Cohen’s team is also exploring niche opportunities like antimony. Last December, China imposed a ban on various metals, including antimony, which controls 50% of refined metal production. This event has created some interesting market dynamics.
The U.S. Department of Defense considers antimony a critical metal so this adds geopolitical weight to potential investments. Perpetua Resources has been attracting attention with antimony project grants, highlighting the strategic importance of these less-discussed metals. Although Cohen sees opportunities in the antimony space in other companies.
Mergers and Consolidation Landscape
Could this be a time for mergers and acquisitions (M&A)? Recently, Equinox Gold announced the acquisition of Calibre Mining and this could signal the start of consolidation in the sector. However, who would be the buyers?
Newmont continues to reshape its portfolio as it digests the acquisition of Newcrest so it might not be ready for any new targets.
Mark Bristow, CEO of Barrick Gold, said that the company is discovering gold for $10 an ounce right now. So, if you are discovering gold at $10 an ounce, do you need M&A? But Barrick Gold recently completed a significant land staking operation in Idaho around Hercules Metals‘ copper discovery, so that could be a sign.
Investment Strategies
Middelkoop describes the current U.S. political landscape as a “second American Revolution,” which could dramatically help project development in the U.S. This geopolitical context suggests improved investment opportunities in regions like Alaska and emerging copper discoveries in Idaho.
Middelkoop likes to get in early. Ivanhoe Mines provides a compelling success story as he got interested in the company after a presentation that Robert Friedland did in 2013. If you like “big discoveries”, Robert Friedland understands the importance of finding tier one assets. Middelkoop invested when the company had a $250 million market cap. Today, it’s valued at $19 billion.
NexGen Energy follows a similar narrative. Initially invested in as a $20-30 million market cap company, before the company had drilled its “first radioactive boulder.” It has grown to a $3.8 billion enterprise and he thinks there is still “room to grow.”
Risk Management in a Volatile Sector
Managing risk requires more than financial analysis, it demands what Cohen calls a “stomach of steel.” Their strategy involves maintaining exposure to tier-one projects while looking at promising junior discoveries.
His team focuses on countries with stable jurisdictions to reduce geographical risks. Currently favouring South America, Australia, Canada, and the Americas over countries such as Mali and Burkina Faso because of their political unrest.
Focused and Opportunistic Investment Approach
Both Cohen and Middelkoop emphasize a bottom-up investment approach. They’re not chasing trends but looking for exceptional discoveries across various commodities.
Their strategy involves:
- Participating in company financings
- Dollar-cost averaging during market dips
- Maintaining a focused portfolio of 30-50 “top 10 best” companies across different commodity sectors
Final Thoughts
As markets evolve, successful investing in mining companies requires adaptability, technical understanding, and a willingness to dive deep into emerging opportunities. Middelkoop’s advice remains straightforward: focus on top discoveries across the various commodities to build your portfolio.
For investors ready to put in the effort and manage their risks, the resource sector still presents attractive opportunities.
Notes: All numbers in CAD unless otherwise stated. The author of this report, and employees, consultants, and family of eResearch may own stock positions in companies mentioned in this article and may have been paid by a company mentioned in the article or research report. eResearch offers no representations or warranties that any of the information contained in this article is accurate or complete. Articles on eresearch.com are provided for general informational purposes only and do not constitute financial, investment, tax, legal, or accounting advice nor does it constitute an offer or solicitation to buy or sell any securities referred to. Individual circumstances and current events are critical to sound investment planning; anyone wishing to act on this information should consult with a financial advisor. The article may contain “forward-looking statements” within the meaning of applicable securities legislation. Forward-looking statements are based on the opinions and assumptions of the Company’s management as of the date made. They are inherently susceptible to uncertainty and other factors that could cause actual events/results to differ materially from these forward-looking statements. Additional risks and uncertainties, including those that the Company does not know about now or that it currently deems immaterial, may also adversely affect the Company’s business or any investment therein. Any projections given are principally intended for use as objectives and are not intended, and should not be taken, as assurances that the projected results will be obtained by the Company. The assumptions used may not prove to be accurate and a potential decline in the Company’s financial condition or results of operations may negatively impact the value of its securities. Please read eResearch’s full disclaimer.
